Hacker News Reader

You appear to be quite against this (judging by your other posts on the matter). The fact remains that the current system is not going to hold, and that left to its own devices will end up with a bunch of walled gardens and other issues.

I agree that it is wise to be wary of regulation in this case--but honestly, I think it's time we at least experiment. The market and regulatory forces at play have basically forced themselves into this position.

My complaint is that everyone's ignoring the economics of the situation. What becomes apparent if you dig into the numbers is that there's no money in building these networks, at least at scale--they are justified only when there's a money-making opportunity with respect to the content flowing through them. Historically, this has been the cable video service that brings in the lion's share of revenue. Even with Google--I have yet to see a story for the profitability of Fiber that isn't predicated on the nexus with Google services.

You can't legislate-away economics. If you make cable and fiber networks into an unattractive investment, nobody will invest in them, and they'll go on life-support just like the phone network. Cable companies will pivot to content, like Comcast is already doing with its purchase of NBC. The vacuum won't be filled, because at the end of the day no VC is going to put up billions of dollars to eke out shit returns on a heavily-regulated service.

Now, what is the way we've historically dealt with goods that aren't worth money but are required to for the general welfare...a sort of public good, if you will.

What was the organization usually tasked with public goods, again?

The way we got the buildout of the telephone networks was the creation of the AT&T monopoly by the government, and they took their job seriously. An alternate approach would be nationalizing it and forcing the government to take care of it.

Free market isn't likely to fix the problem.

I understand that there may be some "hidden costs" that current consumers of broadband in the US don't see. I can also imagine the possibility that un-bundled broadband may be more expensive than current rates (though I can imagine other possibilities as well).

What I have a hard time understanding is your implied argument here: that by forcing a bundle on consumers that includes a high-margin product (cable TV) as well as a low-margin one (broadband), we're doing those consumers a favor. How do I benefit from a subsidized broadband service if I also have to participate in the over-priced and unwanted service that is allowing the subsidy?

You are working on a different notion of "bundling" than rayiner. He's not talking about selling you TV with your internet.

Bundling, in the sense that the FCC is referring to it, is the bundling of internet service with the physical infrastructure it's delivered on.

Un-bundling in this case doesn't mean they have to sell you ESPN without HBO, it means they have to let third-party operators operate on their wiring, switches, and other physical infrastructure for a regulated price.

Thanks for the clarification, though I'm not sure if that's exactly what rayiner meant, considering his comment here: https://news.ycombinator.com/item?id=8998934

Given your premise: I can imagine that, with improper price setting by the FCC, this mandatory wholesale infrastructure sharing could be problematic (long-term unprofitable and thus discouraging towards infrastructure investment).

Priced appropriately to the cost of provision of service, however, how does this put the infrastructure builder (Comcast, Level 3, or whomever else) on unfair footing? It just means Comcast the builder has to expect the same rents from Comcast the service provider as it does from Netflix the service provider.

Forgive me for missing the point - I expect you and rayiner understand this far better than I do and I'm trying to catch up.

The hard part is pricing it appropriately. When the government gets involved in price-setting, there's huge political pressure to extract discounts and generally keep the rates artificially low: http://www.crainsnewyork.com/article/20140219/TECHNOLOGY/140... ("The mayor recognizes this as an economic justice issue, and economic justice issues tend to be fought in the courts.").

People who think that either rate-setting in the context of unbundling or in the context of municipal-fiber will be based on a rational analysis of how much revenues will be needed to justify investment are delusional. Rates for everything from electricity to sewage are artificially low, and consequently in many cases utilities are stuck with century-old infrastructure. Public utilities are a big reason the American Society of Civil Engineers estimates we have a multi-trillion backlog of infrastructure capital expenditures.

The folks who think we should upgrade the fiber networks to enable cloud services will have to get in line with the folks who think we should upgrade our power plants and get rid of century-old polluting coal ones, or upgrade our sewage systems so they don't dump raw sewage into rivers when it rains. And they'll be shouted down by the folks complaining that grandma's electric/water/internet bill is too high, and asking "how can you afford fiber service when you can barely feed your family?"

Public utilities are a big reason the American Society of Civil Engineers estimates we have a multi-trillion backlog of infrastructure capital expenditures.

That's an interesting notion, given that market pressure would be to invest as little as one possible can while extracting as much cash as possible. I certainly have the impression that, in Sweden, the public utilities, which were making sure the power grid had adequate excess capacity and good reliability because this infrastructure is in the "national interest" did a much better job in that respect than the market-based solution. There is simply no comparison between power reliability in the U.S. and in Sweden.

> What becomes apparent if you dig into the numbers is that there's no money in building these networks, at least at scale--they are justified only when there's a money-making opportunity with respect to the content flowing through them.

It seems like the crux of your argument is that it costs something like $60/month to provide internet service and $20/month on top of that to provide TV service but they charge $50/month for each, so they wouldn't be profitable without the TV service. But who is setting these prices?

Is there some law that requires them to charge a money losing price for internet service and then make it up on TV service? Why don't they just charge a profit-making price for internet service?

The market sets the prices of the services at what people are willing to pay. If the cable companies could charge more for internet than they are now, don't you think they would? People are willing to pay a lot more for television service,[1] so if the product you're selling is TV+internet, you can charge enough to justify building a modern fiber/coax network. If it's just internet, you probably can't, at least not in many places.

[1] In my building, in downtown Baltimore, I can get 50/15 FiOS for $50/month, no cap but no TV service, or triple-play cable at 50/5, capped for $109 per month. Almost everyone subscribes to cable rather than FiOS.

I don't get your argument. You seem to be saying that if the internet-only plan is made too expensive then customers will subscribe to the not very much more expensive TV+internet plan. Isn't that what they want customers to do?

No, in this hypothetical the net neutrality advocates have won decisively and the cable companies are in the business of building "dumb pipes."

So you're proposing there is no TV+internet package available from the ISP, they offer only internet and you get your TV from someone like Netflix.

If the ISPs at this point charge a price for just internet service that makes offering that service profitable, what are you expecting customers to do? Go without internet service?

I know you use Verizon as evidence of poor profitability, have you looked at other providers? I calculate 20-25% gross margin for TWC if I attribute all operating costs, some of which should be shared with TV and voice, to Internet.

TWC's financial disclosures: http://ir.timewarnercable.com/files/2014%20Earnings/4Q14/Q4-....

Cost of programming content is $5.2 billion, but video programming generates $10 billion in revenues. Operating income is $4.6 billion. Obviously there's marketing, sales, and operational costs that also go away if you don't have video service. But there's also $1.1 billion in advertising revenue that probably goes away too. And really, the numbers are totally incomplete without looking at capex and depreciation too.

Analysis is similar for Charter, except they're running a net loss straight-up.

Canada has cable broadband unbundling and the big guys (Rogers + Shaw) are doing just fine. But it's allowed for smaller ISPs to get a foothold, like Teksavvy, which I used to use back in Canada.

Now that I'm in the US, I don't see why Comcast can't lease out the last mile to other ISPs for reasonable wholesale rates.

Source that Canada has mandatory line-sharing for cable (not just DSL)?

http://www.crtc.gc.ca/eng/archive/2013/2013-70.htm

http://www.crtc.gc.ca/eng/archive/2010/2010-632.htm

It does not. Canada has mandatory line-sharing only for "phone" companies - i.e., DSL.

This has been a boon for small-time ISPs but a huge thorn in the side of phone companies like Bell and Telus, who are forced to compete with cable giants that are not playing under the same rules.

That's not true

"As retail Internet service demand has evolved to higher speeds, the Commission has required the large telephone companies and cable carriers (collectively, the incumbents) to make some of their high-speed access (HSA) services available to competitors to ensure that these services remain subject to competition and thus protect consumers’ interests."

That's funny, because I'm using a third party internet provider over Rogers cable -- and I have no cable TV account. I can't imagine Rogers choosing to allow Teksavvy access to their last mile, since they could be charging me a LOT more than what I'm paying now (well, maybe not, I'd just get a dry loop DSL account instead).

Why would unbundling without rate regulation be bad?

The network owner could set the wholesale price at one that is still profitable, no?

> Why would unbundling without rate regulation be bad? > The network owner could set the wholesale price at one that is still profitable, no?

Yes. For example $10,000 per month.

I'm not trying to be clever here. The ISPs seemingly don't want to lease out their lines, or else they would probably have done it already. So if we wish to force the ISPs to lease out their lines, we will have to set a maximum price, either explicitly (as a dollar value) or a price that is somehow related to the costs incurred by the ISP.

That's a good point.

So then, how did unbundling + price setting negatively impact the expansion of telephone lines?

You're description is clear and well put, BUT I just can't go along with the statement

"there's just no way for telcos to recoup the billions of dollars spent on fiber if they're forced to..."

The Telco's can't recoup their money AND pay exorbitant salaries to upper management, lobbyists, and still convince wall street that there is "growth potential" quarter over quarter.

If we were just talking about building a network...